Instagram was acquired by Facebook, in 2012, for $1 billion. Therefore, Mark Zuckerberg is the largest shareholder in the company. When Facebook acquired Instagram in 2012, it promised to keep it as dependent as possible. As of 2018, Facebook asserted control over Instagram. In 2018, Insgrangrm’s founder left the company. Today Instagram is the most valuable product of Facebook (rebranded as Meta).
Instagram Origin Story
Kevin had secured an investment, which allowed him to focus on a photo app for a few months.
It was 2010, and this guy was trying to get this app off the ground.
And things didn’t seem to be turning in the right direction.
One day while Kevin was taking a walk with his wife, she said:
“I don’t think I’m going to use it [referring to Kevin’s app] because my photos aren’t that good.”
Kevin remarked:
“Why don’t you think your photos are good?”
And his wife replied:
“Well, all your friends post these amazing photos, and they’re all filtered and stuff.”
Kevin swiftly replied:
“That’s because they use filters!”
And so his wife said:
“Well, you should probably add filters!”
As soon as they returned to their room, Kevin added the first Burbn filter: X-Pro II.
This would be one of the first traction moments of an app that today is worth more than a hundred billion dollars!
As Kevin Systrom pointed out in an Interview for the Tim Ferriss Show:
We decided to pivot, and this is where keeping it simple comes in. We actually got to the idea for Instagram by taking away features from Burbn, not by changing it all. A bunch of the features of Burbn: one, you could check in at a place, but two, you could add a photo of what you were doing at that place.
And he went on:
It turns out people kind of liked the check-ins; they thought it was pretty lame because it was a “me too” thing, but they loved showing people what they were doing. They loved taking a picture of the bar, the restaurant, the whatever. We realized to keep it simple, we were going to have to cut every other feature of Burbn — which we did — and we just kept the photo part.
As explained, the idea which eventually turned Burbn into Instagram came as Systrom was on vacation with his wife, and he finally understood why the app was not gaining traction as he spoke to his wife.
Back from that vacation, once filters were added in, that was the first traction moment.
Instagram, with its filters, became among the first social apps to take over in the mobile era, which kicked off with the launch of the iPhone in 2007.
The Instagram acquisition in a nutshell
Facebook acquired Instagram for $1 billion in 2012.
As pointed out by the NY Times at the time, “It’s a notable move for Facebook, which has exclusively focused on bite-size acquisitions worth less than $100 million.”
At the time, Facebook wasn’t strong on mobile, and acquiring Instagram made perfect sense.
As pointed out by Mark Zuckerberg at the time:
For years, we’ve focused on building the best experience for sharing photos with your friends and family. Now, we’ll be able to work even more closely with the Instagram team to also offer the best experiences for sharing beautiful mobile photos with people based on your interests.
At the time, Facebook was committed to leaving Instagram independent:
That’s why we’re committed to building and growing Instagram independently. Millions of people around the world love the Instagram app and the brand associated with it, and our goal is to help spread this app and brand to even more people.
However, over the years, Mark Zuckerberg took more and more control over the business strategy of Instagram until its founder left the company in 2018, as recounted in the Instagram Business Model analysis.
By then, Instagram had become such an important asset for Facebook that Zuckerberg felt the pressure to assert more control over it.
By 2018, Instagram would be the primary driver of Facebook revenues (driven by mobile advertising) and a key player in the digital advertising industry.
And in 2022, Instagram’s revenues might be as large as Facebook’s.
In short, today, what keeps the advertising machine alive for Facebook (rebranded as Meta) is Instagram.
Following the Facebook business model, Instagram is an attention-based business model in which key stakeholders are its power users (the so-called influencers) and its massive user base.
Revenue is generated through selling advertising on the platform.
Facebook has been rebranded as Meta to steer its focus toward the Metaverse.
Burbn
The year is 2009, and Stanford University graduate Kevin Systrom is working at the travel recommendation start-up Nextstop. Systrom, a connoisseur of Kentucky whiskeys, developed a mobile app called Burbn in his spare time.
The app lets users check in at certain locations, post pictures of meet-ups with friends, and earn points for socializing. In March 2010, Systrom had a chance encounter with venture capitalists at a function for Silicon Valley start-up Hunch. After meeting with Andreessen Horowitz and Baseline Ventures, Systrom received $500,000 in seed funding and quit his job to focus on Burbn full-time.
Once released, Burbn’s myriad features confused users and the app was unsuccessful. Systrom stuck at it, however, and hired programmer Mike Krieger to help him analyze how Burbn’s users were interacting with the platform. The pair found that while most did not care for the check-in feature, they did love the ability to share photos with others.
Burbn becomes Instagram
Based on this and the fact that Burbn was too similar to platforms like Foursquare, Systrom and Krieger renamed the app Instagram. The simple, photo-sharing app for mobile devices was named after a portmanteau of “instant camera” and “telegram”.
Instagram’s development was based on two primary competitors. Hipstamatic had popular features but it was hard to share photos there. On Facebook, it was much easier to share photos – but the platform’s iPhone app features were poor in comparison.
Systrom and Krieger saw an opportunity to slip in between the two and build an app that made social photo-sharing simple. They discarded all of Burbn’s unnecessary features except the ability to upload photos and like or comment on them.
Launch and subsequent funding
Instagram was launched for iOS on October 6, 2010, and some 25,000 users joined on the first day. Hashtags were introduced in January 2011, with the founders encouraging users to ensure they were both specific and relevant to make photos stand out to like-minded individuals.
The platform secured a Series A funding round worth $7 million in February. The round, which valued the company at $25 million, involved investors such as Jack Dorsey and Benchmark Capital. Series B funding worth $50 million followed in April 2012, as did the first version for Android devices.
Various features were added in the Version 2.0 release of the app. These included optional borders, instant tilt-shift, one-click rotation, and high-resolution photographs.
Facebook acquisition
Four days after the Series B round of funding and with the company valued at $500 million, Instagram was acquired by Facebook in a $1 billion cash and stock deal. The deal was finalized in September 2012 after approval from both the Federal Trade Commission (FTC) and Britain’s Office of Fair Trading.
At the time of the deal, Zuckerberg noted that Facebook was “committed to building and growing Instagram independently.” In any case, Systrom earned around $400 million from the sale. In the years that followed, Instagram adopted a more minimalist look and added various other features such as stories, videos, direct messages, and IG TV.
Key takeaways:
- Instagram’s story reads like a fairy tale. The app took only 8 weeks to develop before it was launched in 2010 and had amassed 1 million users in the first two months and 1 billion by the middle of 2018.
- Kevin Systrom developed the predecessor of Instagram in 2009. Then known as Burbn, the app enabled users to share photos and locations with others and earn points for hanging out with friends. Ultimately, however, Burbn had too many features and users found its purpose confusing.
- When Systrom secured $500,000 in seed funding, he hired programmer Mike Krieger to help him analyze how users were interacting with the platform. The pair identified that the popularity of the photo-sharing feature justified building a standalone app later known as Instagram.
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